A municipal bond is a debt obligation issued by a public entity using the loan for financing longterm public projects such as constructing or improving city streets, parks, and fire and police stations. Some are used for municipal water and sewer systems.

A municipal bond is further categorized based on the source of its interest payments and principal repayments. Some city departments are self-funding, such as water and sanitation, which are funded by service charges from water users according to the amount of water used. A general obligation bond, however, is issued by governmental entities for uses that benefit all citizens that benefit globally from having streets, parks and public safety. General obligation (often called "GO") bonds are typically repaid by dedicating property taxes; other GO bonds are repaid with any combination of general fund revenues. Revenue bonds normally pledge repayment from water, sewer, sales tax, fuel, hotel occupancy or other taxes.